It depends on your situation. If you're buying a home and need to make a decision soon, locking in a good rate now might be wise to avoid missing out on the home you want. However, if you're looking to refinance, you could wait a little longer since rates are likely headed down further.
Set and forget: Locking in a fixed interest rate means your repayments stay the same throughout the loan period (typically between 1 to 5 years). Knowing your loan repayments will make it easier to budget and manage your cash flow – giving you more peace of mind.
Should I lock into a fixed rate mortgage now? Despite the fact that mortgage rates have soared in 2022 and 2023, fixing your mortgage now may still be a good bet. Volatility means that going with a variable deal, which is tied to the base rate, means payments can rise rapidly.
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn.
Why mortgage rates won't drop to 2% again. Again, when mortgage rates hit record lows early in the pandemic, the federal funds rate was near zero. Barring another major economic shock, the Fed projects that the federal funds rate will only take modest adjustments downward over the next several years.
However, nearly every economic forecast is predicting lower rates in 2024. The Mortgage Bankers Association's Mortgage Finance Forecast for September 2023 predicts 30-year fixed mortgage rates will be in the 5% range for most of 2024: Q1: 6.1%
Remortgage offers have taken more time to match the lower purchase rates. However, this difference should close as we get closer to the end of 2024. Lenders should bring better deals for homeowners who want to change mortgages. If your fixed term is ending soon, it is smart to begin checking your choices now.
Just like a traditional fixed-rate mortgage, if the Fed raises its rates during your fixed period, yours won't change. But once you're in the adjustable period, you can expect it to go up within the year.
If you have a low loan-to-value (the size of your mortgage as a percentage of your property value) then you could benefit from fixing, as you will be able to secure a lower fixed-interest rate than someone with a higher loan-to-value. The longer your fixed term, the longer you are locked into an interest rate.
Typically, borrowers might consider short-term fixes to take advantage of lower rates without committing for an extended period, thus retaining flexibility in a fluctuating market. However, the decision to opt for a shorter fix, such as one or two years, should be aligned with accurate rate forecasts.
What happens if you lock in a mortgage rate and it goes down? If you're locked in and mortgage rates fall, you'll be stuck paying the higher rate unless your rate lock includes a float-down option. A float-down option lets you honor your locked-in rate or the current rate, whichever is lower.
At its February 2024 meeting, the Reserve Bank Board decided to leave the cash rate target unchanged at 4.35 per cent. This decision supports progress of inflation to the midpoint of the 2–3 per cent target range within a reasonable timeframe and continued moderate growth in employment.
Locking in a fixed rate loan
You may be limited in how much extra you can repay off the loan during the fixed rate period. You may not be able to access features such as redraw or offset accounts. If rates fall during this time, you won't benefit from a reduction in your repayments.
On November 7, 2024, the Federal Reserve cut rates an additional 0.25%. This follows a more substantial cut in September of 0.5%. These cuts come after the Fed started raising rates in 2022 to help bring down inflation, which was squeezing consumers and businesses.
Generally, once you've locked in a mortgage rate, the terms are fixed and usually cannot be renegotiated. However, some lenders offer a float down option, allowing you to negotiate mortgage rates if market conditions shift favorably during the rate lock-in period.
It's common to see monthly mortgage payments fluctuate throughout the life of your loan due to changes in your home value, taxes or insurance.
5 year fixed rate mortgage
With a 5 year mortgage, you keep the same interest rate for that 5 year period. After that time, you can remortgage without paying an early repayment charge (ERC). But if you choose to remortgage before those 5 years are up, it's likely you'll need to pay an ERC.
It's generally a good idea to lock in your mortgage rate with your lender of choice once you've gone under contract on a home, since there's no way to definitively know which direction interest rates are headed. That way, your monthly payments won't go up if rates rise during the closing process.
The National Association of Realtors: NAR's quarterly outlook has 30-year mortgage rates ending 2024 at 6.1% and bottoming out around 5.8% toward the end of 2025. After that, we could see rates tick back up to 6.1% in 2026.
The average 2 year fixed rate mortgage in January 2023 was 5.79%. By comparison, the average 2 year fixed rate mortgage on 4 January 2025 was 5.05%, according to Rightmove.
Current Forecasts and Expert Opinions
The short answer is: It's highly unlikely we'll see mortgage rates drop back to 3% anytime soon. However, recent inflation numbers point to cooling of the pace of inflation.
Despite an overall reduction in borrowing costs over the past two years, the 30-year mortgage rate recently moved up from a little above 6% in September 2024 to closer to 7% in January 2025. That contrasts with longer term mortgage rates holding at historically low levels of between 2% and 3% for much of 2020 and 2021.
Five-year fixes are cheapest – for now.
In normal times, interest rates tend to get more expensive the longer you fix your mortgage for. But for the past couple of years, interest rates on five-year fixes have often been cheaper than two year-fixes – with even some 10-year fixes beating two-year deals in recent times.